The Supreme Court has ruled that the release of an escrow deposit under Regulation 15B(8) of the SEBI (Buyback of Securities) Regulations, 1998 does not preclude or bar an independent investigation or finding of market fraud under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations). A bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan held that the inquiry governing escrow forfeiture operates in an entirely distinct field from an adjudication of fraud. Setting aside the Securities Appellate Tribunal’s (SAT) order that had absolved Vedanta Limited and its directors, the apex court partly allowed the appeals preferred by the Securities and Exchange Board of India (SEBI) and remanded the matter back to SAT for a fresh adjudication on the allegations of fraud within six months.
Background of the Case
On November 26, 2013, respondent company Vedanta Limited (formerly Cairn India Limited) approved a special resolution to execute an open-market buyback of 17.09 crore equity shares at a maximum price cap of Rs. 335 per share, earmarking an aggregate outlay of Rs. 5,725 crore. Following a public announcement on January 14, 2014, the buyback opened on January 23, 2014, and ran until July 22, 2014. In compliance with Regulation 15B(5) of the Buyback Regulations, the company deposited 2.5% of the maximum buyback size—amounting to Rs. 143.124 crore—into an escrow account with Axis Bank.
By June 30, 2014, having completed five months of the six-month period, the company sought an extension from SEBI, reporting that it had purchased only 3.6 crore shares (21.48% of the target) by deploying Rs. 1,225 crore (28.59% of the earmarked funds). SEBI rejected the request because the regulations contained no provision enabling an extension. Following the closure of the buyback, the company informed SEBI that it had failed to achieve the mandatory 50% minimum deployment threshold under Regulation 14(3) and applied for the release of its escrow funds under Regulation 15B(8).
SEBI’s Investigation Department (IVD) initially found that the company qualified for exemption from escrow forfeiture and released the deposit. However, a parallel investigation into suspected violations of the PFUTP Regulations resulted in an Adjudicating Officer (AO) order on May 19, 2021. The AO found the company and its directors guilty of making a misleading buyback announcement without a genuine intent to execute it, imposing a penalty of Rs. 5.25 crore on Vedanta Limited and Rs. 15 lakh each on three directors.
On October 5, 2023, SAT set aside the AO’s penalty order, observing that bullish market trends kept prices above the cap for substantial periods, the expenditure of over Rs. 1,225 crore was not a sham, and the earlier release of the escrow confirmed a lack of fraudulent intent. SEBI subsequently appealed to the Supreme Court.
Arguments of the Parties
Appearing for SEBI, Senior Counsel Navin Pahwa contended that out of 123 trading days, there were 54 favorable days on the National Stock Exchange (NSE) where share prices were at or below the Rs. 335 cap. Over 67 crore shares were available for sale on these days, yet the company purchased only about 5% of the available volume. Crucially, the company did not place a single buy order on 24 of those favorable days, despite having the facility to enter limit orders. He argued that SAT erroneously treated the escrow release under Regulation 15B(8) as an absolution from PFUTP proceedings, overlooking that the announcement induced market participants and created artificial trading volumes.
Countering these submissions, Senior Counsel Rajiv Shakdher, appearing for the respondents, argued that the company acted bona fide by deploying over Rs. 1,225 crore and appointing registered merchant bankers. He highlighted that on 65 out of 123 days, the Volume Weighted Average Market Price (VWAMP) hovered above Rs. 335, making trade execution unviable. The respondents submitted that SEBI’s own regulatory release of the escrow confirmed the absence of fraudulent intent, and pointed out that internal notings from SEBI’s Legal Affairs Division (LAD) had cast doubt on sustaining fraud charges on the same facts. Furthermore, the defense pointed to significant factual discrepancies in the exchange order-book data relied upon by the AO.
The Court’s Analysis
The Supreme Court examined the relationship between Regulation 14(3) and Regulation 15B(8) of the Buyback Regulations alongside the PFUTP framework. The bench clarified that while Regulation 15B(8) sets out exceptions against escrow forfeiture—such as high VWAMP, inadequate sell orders, or circumstances beyond corporate control—it does not define or determine the existence of fraud.
Rejecting the argument that escrow release provides statutory immunity from fraud investigations, the bench observed:
“The fact that the conditions governing the forfeiture or release of an escrow have been satisfied, by itself, cannot be treated as a finding on whether the PFUTP Regulations have been violated or not.”
The court further ruled:
“Thus, the mere release of the escrow does not create an automatic statutory bar to proceedings under the PFUTP Regulations because the release of the escrow is not necessarily equivalent to absence of fraud.”
The bench also rejected the respondents’ reliance on internal file notings of SEBI’s Legal Affairs Division, citing the precedent in M/s Sethi Auto Service Station v. Delhi Development Authority, which established that departmental file notings merely express individual officer opinions and do not constitute binding, executable decisions.
Surveying securities fraud jurisprudence, the court reviewed several decisions:
- KSL Industries v. The Chairman, SEBI: Held that allegations of fraud cannot rest on conjectures and surmises without positive evidence establishing a real nexus.
- SEBI-Mumbai Order in MOH Ltd.: Demonstrated an orchestrated scheme where a misleading buyback announcement was made without financial reserves, followed by promoter offloading.
- SEBI v. Kishore R. Ajmera: Established that civil charges of market manipulation can be deduced through a logical inferential process on a preponderance of probabilities from surrounding circumstances.
- SEBI v. Kanaiyalal Baldevbhai Patel: Held that non-intermediary front-running based on confidential information constitutes fraudulent conduct under Regulation 3.
- Deccan Chronicle Holdings Ltd. v. SEBI: Confirmed that announcing a buyback without adequate free reserves misleads investors and constitutes fraud.
- SEBI v. Terrascope Ventures Ltd.: Affirmed that diverting funds immediately upon receipt, contrary to the stated object in the notice, demonstrates an intent to manipulate from inception.
- Reliance Industries Ltd. v. SEBI: Authored by Justice Pardiwala, holding that where regulatory authorities cannot show direct inducement of third parties, the manipulative device must admit of “no other explanation but that of fraud,” requiring a higher degree of probability.
- Alupro Building Systems (P) Ltd. v. CCE: Authored by Justice Pardiwala, confirming that the degree of probability must be proportionate to the subject matter.
Applying these principles, the bench held that SAT erred by relying on the escrow release inquiry to dismiss the PFUTP charges. However, the court also uncovered glaring discrepancies in the trading data that formed the foundation of the AO’s findings. On February 17, 2014, the investigation report recorded over 1.31 crore shares available for sale at or below Rs. 335 on the NSE, whereas the NSE’s own communication reflected only slightly over 30 lakh shares—a four-fold discrepancy. Similar contradictions arose regarding data for February 14, 2014, and BSE records between May and July 2014. In addition, SEBI’s February 2016 report had found no material impact on price or volume due to the announcement, directly contradicting its March 2017 report alleging fraud.
The bench held that resolving such disputed facts fell outside its appellate remit:
“This, in our view, is a disputed question of fact that goes to the very root of the finding of fraud. This Court, exercising jurisdiction under Section 15Z of the SEBI Act, is not the appropriate forum for such resolution.”
Decision of the Court
The Supreme Court partly allowed the appeals and remanded the dispute back to SAT strictly for a fresh adjudication on the question of fraud.
The apex court issued four specific directions to SAT:
- Re-examine the conflicting historical trading data—including the NSE letter dated December 10, 2014—and record specific findings reconciling the discrepancies on the availability of sell orders and prices.
- Exercise its civil court powers under Section 15U(2) of the SEBI Act, if necessary, to summon and examine on oath officers of the company and merchant bankers, and order the discovery of documents to ascertain the full facts concerning the placement of buy orders.
- Determine whether corroborating circumstances beyond trading data exist on record to substantiate an inference of fraudulent intent.
- Render fresh findings on the PFUTP allegations uninfluenced by the Supreme Court’s observations on the merits, and dispose of the proceedings expeditiously within a period of six months.
Case Title: Securities and Exchange Board of India v. Vedanta Limited & Ors.
Case No.: Civil Appeal Nos. 25-26 of 2024
Bench: Justice J.B. Pardiwala, Justice K.V. Viswanathan
Date: September 9, 2026
